November 1, 2017

Fund innovation for investor preference

Australia’s high-yield fixed-income market has evolved from being virtually non-existent just a few years ago to now offering a reasonably consistent funding option for Australian companies.

National Australia Bank has been deeply involved in the development of this market as part of its strategy of connecting corporate borrowers with pools of liquidity beyond the bank’s own balance sheet.

In September, NAB and KangaNews brought together a group of Australian fixed-income investors to discuss the development of the local high-yield market. This group comprised institutional fund managers and representatives of the non-institutional fixed-income world, particularly the self-managed superannuation sector. Each investor type shared its own specific drivers.

“In the past our business used to be product-focused, where now it is relationship-focused,” says Mark Todd, Head of Customers Direct, Global Markets, NAB.

On the institutional side, the key developments are the growth of funds with mandate flexibility to take high-yield debt. Fund managers say this critical mass, rather than wide-scale mandate changes or the much discussed ‘hunt for yield’, is the primary driver of their ability to make deals work.

“The most likely source of high-yield issuance in Australia is companies with growth ambitions in the top 300 listed names,  but in all likelihood outside the top 100”, says Andrew Gordon, Global Markets Director, NAB.

For non-institutional investor representatives, the factors driving growth in fixed-income investment overall were also top of the list of high-yield motivators. Specifically, Australia’s ageing population is seeking secure income streams in retirement and thus better understanding of and engagement with debt securities.

Read full article of discussion.